Co-op's debt has reached levels that are no longer sustainable without the sale of treasured assets, said Lord Myners. Photograph: Eamonn McCabe

The Co-operative Group needs to take immediate action to reform or it runs the risk of being unable to continue in business, according to a damning report on the troubled mutual organisation.

Former City minister Lord Myners, appointed a non-executive director of the group of pharmacies, supermarkets and funeral homes after the problems exposed by the discovery of a £1.5bn capital shortfall in its bank, called for radical changes to the current organisational structure.

"Unless the group takes urgent steps to reform its governance so that it generates sustainable economic value, it will run out of capital to support its business," he said.

"The Co-operative Group suffers from acute systemic weaknesses in its governance framework that over many years have gravely damaged the organisation. These failings include a series of costly strategic misjudgments that have undermined the group's competitive position and severely eroded its capital base.

"The group board have collectively presided over losses of several billion pounds in the course of the last few years. Debt has reached levels that are no longer sustainable without the sale of treasured assets. Sale and leaseback transactions represent an expensive addiction the cost of which does not appear, even now, to be fully appreciated by the board."

At the moment the 20-strong Co-op Group board does not include the any members of the executive team, and until the appointment of Myners was made up of representatives of the 8 million members of the co-operative movement.

In his report, Myners said: "I am deeply troubled by the disdain and lack of respect for the executive team that I have witnessed from some members of the group board. There is a phrase frequently used in Co-operative Group circles that the executive should be 'on tap but not on top'.

"It is now clear to me that this is a widely held but deeply flawed representation of the reality in recent years. Elected directors have simply not been up to their task of holding the executive to account."

He said the board had spent far too much time on transactions such as Somerfield and Britannia that had been "breathtakingly value-destructive".

He also said the group's social agenda should be more aligned with its commercial objectives with "a need for a full audit of controls over money spent on social goals and given to affiliated bodies".

He proposed a new board with an independent chair, six to seven independent non-executive directors, and also a national membership council of 100 individuals, charged with making sure the group adhered to co-operative values. These proposals will be put to the 2014 annual meeting, and have to be backed by the Co-op's regional boards as well as the main board. Myners said: "Ordinary members have very little power and I recognise that, aside from the influence of corporate members from the independent societies, the future of my recommendations lies in the hands of around 100 elected individuals on the current group and regional boards, few of whom have any serious business experience and many of whom are drawing material financial benefits from their positions."

This prompted him to launch a blistering attack on "an individual or individuals" attempting to undermine him in a posting on the group's Facebook page. He also attacked the group's "professional and commercial governance" and pledged not to take £3m of controversial retention payments.